) -- The sale of

Wilmington Trust

( WL) to M&T Bank

(MTB) - Get Report

for $351 million in stock, or $3.84 per share, was the best deal shareholders could expect given the challenges the Delaware-based institution.

"This is the best option considering the levels of distress the

Wilmington Trust balance sheet shows," said Stephen Moss, an analyst over at Janney Montgomery Scott. "Clearly regulators forced this sale. Their choice was either to raise common equity or sell themselves."

Wilmington Trust's stock sunk 43%, or down $3.03 at $4.08 after the announcement.

Shareholder disappointment over the transaction is already triggering lawsuits. Kendall Law Group is investigating whether or not Wilmington Trust was properly shopped.


(LAZ) - Get Report


JP Morgan

(JPM) - Get Report

were advisors in the transaction.

Private equity firms had been rumored to be thinking of investing in Wilmington Trust.

Bank of Montreal

(BMO) - Get Report


Toronto-Dominion Bank

(TD) - Get Report

are also rumored to be contacted about a takeover of the bank.

"I find it hard to believe they were not properly shopped," said Moss. "I doubt a white knight will step forward."

It is no wonder shareholders are dissapointed with the deal. The transaction rings in at half of the bank's market value last week. Investors will get 0.051372 shares of M&T for each Wilmington share they own. The price factored in the bank's repayment of $330 million to the U.S. Treasury's Troubled Asset Relief Program and losses in the third quarter. Management called the decision to sell the company, "painful and difficult," on their third earnings conference call.

Wilmington Trust reported is sixth quarterly loss of $365.3 million for third quarter. The net loss available to common shareholders was $369.9 million, or $4.06 per share. The losses were primarily due to exposure from the commercial real estate market and credit deterioration in their loan portfolio.

During the conference call Wilmington Trust CEO Donald Foley said that the company drew in interest from "numerous," bidders. He reiterated that M&T was the best option. "I think we have a firm committed deal. Both parties are headed down his road," Foley said. The break up fee for the transaction is set at $30 million.

Foley added that the company's options were limited. "We have little assurance that our loan portfolio will strengthen significantly in the near term, or that our capital position will not erode further. These risks increase the possibility of downgrades by the credit rating agencies or adverse regulatory actions which could compromise our businesses."

"Looking at the quarter, the loss was a big surprise," said Christopher McGratty, an analyst at KBW. "When you look at the market, it clearly puts their deterioration in perspective and book value was their best option at this point."

The name of Wilmington Trust won't fully dissapear. M&T will keep the Wilmington Trust brand name for the trust and wealth management business and transition the banks to the M&T bank name by mid-2011 and have everything fully-phased in by 2012. M&T plans to spend $159 million in pre-tax merger related charges.

Moss says to expect some layoffs where some operations overlap such as in Southeastern Pennsylvania. However, for the most part M&T will be expanding their geography with the acquisition.

M&T bank has over 800 branches in New York, Pennsylvania, Maryland, Virginia, West Virginia, Delaware, New Jersey, and Washington, D.C. Wilmington Trust has 50 bank branches in Delaware and some banking offices in locations around the country including New Jersey, New York, Arizona and Pennsylvania.

"There will be relatively little overlap in the branch network," said M&T Bank CFO Rene Jones on the third quarter earnings conference call.

M&T has a history of acquring distressed banks. The bank acquired

Provident Bankshares

in 2008. Atwood "Woody" Collins III, the Baltimore-based president of M&T's Mid-Atlantic region, will be managing the conversion of the branches.

--Written by Maria Woehr in New York.

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